MONTNEY, HORN RIVER BASIN & MUCH MORE

Energy Processing Canada, May/Jun 2008

Spurred by large unconventional natural gas discoveries, British Columbia posted its largest land sale ever in late May, collecting $441.65 million from the auction of petroleum and natural gas rights.

This was the third-largest auction of mineral rights ever held in Western Canada. "Our investments in infrastructure and innovative royalty programs have contributed to this success," says B.C. Natural Resources Minister Richard Neufeld. "The escalating productivity and value of the oil and gas sector signal a bright future for British Columbia."

The key parcels in the sale were three drilling licences at Stewart Creek, 40 kilometres southwest of Fort St. John, in the province's northeast. One generated a bid of $140 million - which could make it the most expensive parcel ever sold in Western Canada - and two others fetched bids of more than $102 million each.

The per-hectare price of $20,000 to $25,000 is about five times the regular going rate of $5,000 per hectare.

While the northeast is a red-hot exploration area, in the provincial capital of Victoria the government is taking bold steps regarding energy conservation and efficiency, electricity, alternative choices, and oil and gas (see sidebar story).

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Producers actually spent more money on B.C. land sales in the first quarter of 2008 than they did in Alberta, it was revealed in early April. A total of $277.55 million was spent to acquire rights to 154,748 hectares in B.C., mostly in two developing gas plays (the Montney tight gas and Horn River Basin shale gas plays), for an eye-popping $1,793 per hectare. This was a record first quarter for the province and 65% more than last year's first quarter average price of $1,084 per hectare.

There are a lot of Alberta-based companies active in B.C. Here are a few snapshots:

Estimates of northeast British Columbia's potential natural gas resources jumped in late April after Nexen said its shale gas play in the Duly Creek region, just south of the Northwest Territories border, could potentially hold three to six trillion cubic feet.

Together, producers with Horn River Basin shale gas in northeast B.C. have put the area's potential resources at 18 to 28 trillion cubic feet and that doesn't count potential gas from EnCana Corporation's lands in the region.

In recent months, other Horn River players that have offered potential reserve estimates include Apache Canada Corp. (nine to 16 tcf) and EOG Resources Canada Inc. (six tcf).

"Over the past 18 months, we have accumulated a substantial land position of approximately 123,000 net acres in an emerging Devonian shale gas play in the Horn River Basin in northeastern British Columbia, which has the potential to become one of the most significant shale gas plays in North America," explains Nexen President and CEO Charlie Fischer. "We have a 100% working interest in these lands.

"Our capital program over the past two winers has primarily focused on the Duly Creek area in the Horn River Basin where we have approximately 85,000 net acres. The shale gas play has been compared to the Barnett Shale in Texas by other operators in the area as it displays similar rock properties and play characteristics. The average gross shale thickness of our Duly Creek lands is approximately 175 metres, which is almost 50% thicker than the Barnett," he continues.

Apache Corp. chief executive Steven Farris says it will take $5 billion or more over the next decade to develop its shale gas formation in the Ootla area, which is believed to hold between 9 trillion and 16 trillion cubic feet. Apache and EnCana Corp. together control 417,000 acres in the Muskwa shale in the Horn River Basin.

The combination of strong natural gas prices and B.C.'s more favourable royalty structure has "revitalized" Alberta Clipper's interest and efforts in the Trutch area of the northeastern portion of the province, President and CEO KeI Johnston told company shareholders in mid May.

"When we announce our [second half capital] budget in about a month . . . we'll be making a dramatic re-entry into northeast B.C. " says Mr. Johnston.

Alberta Clipper currently holds more than 50,000 net acres of undeveloped land in northeast B.C. with production proven from eight stratigraphie intervals - three of which have potential to benefit significantly from the application of new recovery optimization technologies not yet applied to the properties.

Infrastructure constraints could become a major issue in northeastern B.C. as companies ramp up production in the hot Montney gas play, says ARC Energy Trust President and CEO John Dielwart. His company has an interest in a total of 120 (100 net) sections of undeveloped land in that play.

While ARC has discovery wells on some of the lands, "it's pretty hard to do a major infrastructure plan until you spend more money," says Mr. Dielwart. That's why the trust has increased its capital budget for the play twice this year, including an additional $40 million in early May. ARC has allocated $125 million - about 25% of its total 2008 budget - to the Montney. Most of the money will be spent on delineation drilling.